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Bernanke said the prospect of high unemployment for a long period is a central concern for the Fed. He also made clear that he is determined to prevent the United States from slipping into a deflationary spiral
-- a prolonged drop in wages and prices. The Fed chief said the foundation is being laid for stronger growth in 2011: Households are saving more and healthier banks are more willing to lend. That should boost consumer spending, which makes up 70 percent of U.S. economic activity. Corporate profits and personal incomes also rose in the second quarter, noted Rebecca Blank, undersecretary for economic affairs at the Commerce Department. "There is some good news here," she said. "Those are the things that will fuel a longer-term recovery." Still, the report for April to June showed that economic growth was reduced by a surge of imports in June and a smaller buildup in business inventories than previously estimated. Without the trade deficit, the economy would have grown at a healthy 5 percent pace. Instead, the gap essentially subtracted 3.4 percentage points, the biggest hit from a trade imbalance since 1947. Business investment in new machinery, computers and software rose nearly 25 percent, driving much of the growth last quarter. But much of that spending was on goods from other countries
-- a 32 percent increase in imports, the most since 1984.
Bernanke and many private economists seem to think that was mostly an aberration. As businesses pare back their spending on inventories and reduce investment in new equipment, imports should decline and come more into alignment with exports, they say. Americans personally spent a bit more in the second quarter than previously calculated. Their spending rose at a 2 percent annual rate, above the 1.6 percent estimated last month. The government's report measures the gross domestic product, which covers goods and services from autos to haircuts. Friday's report is the second of three estimates the government makes each quarter.
[Associated
Press;
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